Cloud computing: A new game of telephone for the communications industry

As both providers and consumers of cloud services, communications service providers (CSPs) are at the heart of cloud computing’s disruptive impact.

Overview

Cloud computing offers a window of opportunity for the CSP leaders to fuel innovation and transform their culture. This window, however, is not likely to be open for long.

The power of cloud architectures and the use of mobile devices to access cloud solutions are rising exponentially. However, the performance and capacity of CSPs’ networks are improving only incrementally.

This gap in growth rates means the network is the main constraint on future cloud delivery.

As a result, the ability to build cost-effective, next-generation, software-defined data centers is becoming increasingly important—especially considering rising prices for power and real estate.

CSPs also face shrinking fixed-line revenues and ongoing erosion of margins in their traditional carrier business.

CSPs should . . . shift from a mindset of selling communications offerings to one of selling business transformation.

Analysis

CSPs face internal and external opportunities to
harness the cloud.

Internally, as in other industries, CSPs can use the cloud to deliver higher quality, more flexible and more scalable IT services at lower cost.

Externally, CSPs can offer a new range of sophisticated cloud-based Everything-as-a-Service (XaaS) offerings to customers.

In doing so, CSPs can leverage their own security and scale while acting as first-party cloud service providers. They can also act as resellers or brokers of third-party cloud solutions via direct or indirect, alliance-based relationships.

We’ve devised a cloud maturity model to help CSPs map their path to cloud maturity, enabling leadership to pinpoint its organization’s stage in the journey, assess opportunities and plan the next steps.

Our model divides the journey into five primary phases:

Optimizing the foundation

Expanding external portfolio

Connecting with customers

Developing value-added services

Innovation and orchestration

Key Findings

CSPs must embark on a further migration to survive and thrive in a cloud-enabled future.

The next stage in the evolution is to integrate cloud in more targeted ways in specific customer segments, industry verticals, functional niches and geographies.

CSPs that seize this opportunity successfully will use cloud in seven key ways:

Shifting the industry mindset from vertical to horizontal and from stand-alone to collaborative.

Combining cloud, mobility and analytics to deliver a new wave of innovative and collaborative services at a faster pace.

Leveraging the cloud for security capabilities and to meet security and compliance requirements.

Acting as a cloud broker to expand offerings and move up the IT “stack.”

Enabling and accelerating the journey to the cloud for small- and medium-sized businesses.

Forging global “constellations” of national providers to build cloud services on a competitive scale.

Depending on each CSP’s specific positioning, capabilities and customer base, each of these market approaches—and any combination of them—could be the optimal choice.

Recommendations

Given the profound changes coming, CSPs should take a holistic view of the challenges and shift from a mindset of selling communications offerings to one of selling business transformation.

This, in turn, demands CSPs acquire the ability to segment their client portfolios in new ways, coordinating elements such as client training, consulting, and organizational redesign—often through partnerships with specialized providers.

Considering the competitive challenges, CSPs in all markets will need to be very smart in picking where to play in the cloud arena.

They’ll also need to align the precise balance and positioning of their cloud presence with their specific capabilities (whether grown or acquired) and their customer base.

Our analysis suggests that CSPs’ main options include:

Becoming a first-party provider offering its own capacity and services direct to customers in the cloud.

Acting as a cloud-services broker, reselling third-party offerings for a slice of the revenues.

Targeting national, regional or global opportunities.

Focusing on selling to specific segments, such as consumers, governments and small- and medium-sized businesses.

Furthermore, we believe this segmentation will become increasingly specific to different types of business customers over time.

This includes addressing vertical industry segments, such as a “health cloud,” with value-added services on top of raw storage, hosting and network-based capabilities.

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